Ethics Opinions

RPC 210

April 4, 1997

Editor's Note: RPC 210 and RPC 211, companion opinions on
representation in residential real estate closings, were adopted by the council
of the State Bar on January 12, 1996. On April 12, 1996, the council withdrew
the opinions following substantial negative comment from real estate
practitioners who indicated that the opinions might eliminate the economic
efficiencies inherent in one-lawyer residential real estate closings. A
substitute opinion for RPC 210 was proposed and subsequently adopted on April 4,
1997.

Representation of Multiple Parties to the
Closing of a Residential Real Estate Transaction

Opinion examines the circumstances in which it is acceptable for a
lawyer to represent the buyer, the seller, and the lender in the closing of a
residential real estate transaction.

Introduction:

This opinion clarifies the conditions under which a closing lawyer
may engage in common representation of the multiple parties to the closing of a
residential real estate transaction. To the extent that a prior ethics opinion
is inconsistent with this opinion, the prior opinion is withdrawn.

Inquiry #1:

In the usual residential real estate transaction, the contract to
purchase is entered into by the buyer and seller prior to the engagement of a
lawyer to close the transaction. May the closing lawyer represent both the
buyer and the seller to close the transaction?

Opinion #1:

Rule 5.1(a) prohibits the representation of a client if the
representation is directly adverse to the representation of another client
unless there will be no adverse effect on the interests of both clients and the
clients consent. At first blush, it may appear that the interests of the buyer
and the seller of residential real estate are adverse. Nevertheless, after the
terms of the sale are resolved, the buyer and the seller of residential real
estate have a common objective: the transfer of the ownership of the property
in conformity with the terms of the contract or agreement. In paragraph [10] of
the comment to Rule 5.1, "Conflicts of Interest," it is observed that
"a lawyer may not represent multiple parties to a negotiation whose interests
are fundamentally antagonistic to each other, but common representation is
permissible where the clients are generally aligned in interests even though
there is some difference of interests among them." If the interests of the
buyer and seller of residential property are generally aligned and the lawyer
determines that he or she can manage the potential conflict of interest between
the parties, a lawyer may represent both the buyer and the seller in closing a
residential real estate transaction with the consent of the parties. Rule
5.1(a).

A lawyer may reasonably believe that the common representation of
multiple parties to a residential real estate closing will not be adverse to
the interests of any one client if the parties have already agreed to the basic
terms of the transaction and the lawyer's role is limited to rendering an
opinion on title, memorializing the transaction, and disbursing the proceeds.
Before reaching this conclusion, however, the lawyer must determine whether
there is any obstacle to the loyal representation of both parties. The lawyer
should proceed with the common representation only if the lawyer is able to
reach the following conclusions: he or she will be able to act impartially;
there is little likelihood that an actual conflict will arise out of the common
representation; and, should a conflict arise, the potential prejudice to the
parties will be minimal. See, e.g., ABA Model Rule of
Professional Conduct 2.2, "Intermediary."

If the closing lawyer reasonably believes that the common
representation can be managed in the best interests of both the buyer and the
seller, he must obtain the consent of each of the parties after full disclosure
of the risks of common representation. Rule 5.1(a). Full disclosure should
include an explanation of the scope of the lawyer's representation. The lawyer
should advise each party of the right to separate counsel. The disclosure
should also include an explanation that if a conflict develops, the lawyer must
withdraw from the representation of all parties and may not continue to
represent any of the clients in the transaction. Rule 2.8(b). Although it is a
better practice to put such disclosures in writing, the Rules of Professional
Conduct do not require written disclosures.

If common representation is appropriate, the representation of the
seller may include preparing the deed, collecting the purchase price, and
drafting the documents necessary to complete the transaction in accordance with
the agreement between the buyer and the seller. The lawyer may charge the
seller for this representation. CPR 100.

Inquiry #2:

The buyer and the lender usually agree to the basic terms of the
mortgage loan (amount, security, interest rate, installment, and maturity)
prior to the engagement of the closing lawyer. In this situation, may the
closing lawyer represent both the lender and the buyer?

Opinion #2:

Yes, if the interests of the buyer and lender are generally
aligned and the lawyer determines that the potential conflict of interest can
be managed. Rule 5.1(a). As stated above, before concluding that the common
representation will not be adverse to the interests of any one client, the
lawyer must determine three things: he or she will be able to act impartially;
there is little likelihood that an actual conflict will arise out of the common
representation; and, should a conflict arise, the potential prejudice to the
parties will be minimal.

Although full disclosure to the lender of the risks of common
representation is recommended, if the lawyer reasonably believes that the
lender understands the closing lawyer's role because the lender is a
knowledgeable and experienced participant in residential real estate
transactions, the lawyer does not have to make a full disclosure to the lender
regarding the common representation as required in opinion #1 above.

Inquiry #3:

If the closing lawyer does not intend to represent all of the
parties to the transaction, does the lawyer have any responsibility to the
party or parties he or she does not intend to represent?

Opinion #3:

Yes. By custom, the lender and the buyer are usually represented
by the same lawyer. Therefore, if the lawyer does not intend to represent both
the buyer and the lender, the lawyer must give timely notice to the party that
the lawyer does not intend to represent, so that this party may secure separate
representation. CPR 100. If the lawyer does not give such notice, the lawyer
will be deemed to represent both the buyer and the lender. CPR 100. If the
lawyer represents only the buyer, the lawyer may nevertheless ethically provide
title and lien priority assurances required by the lender as a condition of the
loan. CPR 100. If the party that the lawyer is not representing obtains
separate counsel, both lawyers should fully cooperate with each other in
serving the interests of their respective clients and in closing the
transaction promptly.

It is not generally assumed that the buyer's lawyer will represent
the seller. Therefore, if the closing lawyer does not intend to prepare the
deed or perform other legal services for the seller, the lawyer does not have
to give notice to the seller. But see Cornelius v. Helms, 120 N.C. App.
172,461 S.E.2d 338 (1995), disc. rev. denied, 342 N.C. 653,467 S.E.2d
709 (1996), for related negligence issues.

Inquiry #4:

May a lawyer who is representing the buyer, the lender, and the
seller (or any one or more of them) provide the title insurer with an opinion
on title sufficient to issue a mortgagee title insurance policy, the premium
for which is normally paid by the buyer?

Opinion #4:

Yes. CPR 100.

Inquiry #5:

If a lawyer is representing more than one party to a residential
real estate closing, what should the lawyer do if a conflict develops between
the clients before, during, or after the closing?

Opinion#5:

If a conflict or controversy relating to the transaction arises
between any of the parties being represented by the closing lawyer, the lawyer
must withdraw from the representation of all of the clients and is ethically
barred from representing any of the clients in the transaction or any dispute
arising out of the transaction. Rule 5.1(a).